(The Center Square) — A provision of New York’s cannabis law that gives priority for pot licenses to in-state applicants is unconstitutional, a federal appeals court has ruled.
The U.S. Court of Appeals 2nd Division ruled on Wednesday that a portion of the state’s social equity program, which excludes individuals with federal or out-of-state pot convictions from receiving priority, likely violates the dormant Commerce Clause by favoring New York residents over those from other states. The dormant clause prevents states from passing laws unfairly, giving their businesses an edge over out-of-state companies.
“Congress has given New York no clear permission to enforce protectionist marijuana licensing laws … and New York’s prioritization of applicants with convictions under New York law is a protectionist measure that cannot stand,” the three-judge panel’s majority wrote in the 63-page ruling.
The ruling stems from a lawsuit filed by Variscite NY, a California-based company, which said its out-of-state workers with previous criminal convictions were unfairly denied “extra priority” status in New York’s pot licensing lottery.
The appeals court ruling sends the case back to the U.S. District Court for the Northern District of New York, which had denied the plaintiffs’ request for an injunction.
In a dissenting opinion, Chief Judge Debra Ann Livingston sided with the lower court’s argument that the Commerce Clause shouldn’t apply to the marijuana market because the drug is still illegal under federal law. She said using the clause to New York’s social equity licensing regulations undermines Congress and the federal government that wants to “eradicate” the cannabis market.
Lawyers for New York’s Cannabis Control Board and Office of Cannabis Management argued that the licensing scheme doesn’t violate the dormant Commerce Clause because its goal was restorative justice, not economic protectionism. But the court’s majority said the state “failed to prove that the discriminatory policy was the only way to achieve that goal.”
The ruling is yet another blow to New York’s recreational cannabis program, which lawsuits and other delays have plagued. In June, the state Office of Cannabis Management notified 152 dispensaries that because of an “error” by regulators in calculating the distance from their property lines to schools or houses of worship, they violate state law and face closure or relocation.
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Gov. Kathy Hochul and legislative leaders have since indicated they intend to update the law to allow the cannabis businesses to continue operating.
To date, at least 24 states, the District of Columbia and the U.S. territory of Guam have legalized recreational marijuana, to the National Conference of State Legislatures. Thirty-eight states have medical marijuana programs.